Mandiant: New Company, Better Value
- FireEye just officially changed their name to Mandiant and is in the process of selling off the FireEye business.
- The new company will focus on their threat intelligence SaaS platform with a goal of making every organization secure from cyber threats.
- The stock trades at a very attractive 5x '22 EV/S targets.
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The long struggling FireEye has become Mandiant (MNDT). The cybersecurity specialist is in the process of selling the previous FireEye business to focus on the threat intelligence SaaS platform of Mandiant. My investment thesis is more Bullish on the new company after years of avoiding the slow growth FireEye.
On October 4, FireEye changed their name to Mandiant and officially switched the ticker symbol to "MNDT" from "FEYE". The company had previously announced the pending sale of the former FireEye business for $1.2 billion to Symphony Technology Group.
The stock has a market value of $4.2 billion, providing a strong indication the market far prefers the split of the business with the focus on the Mandiant side of the business. The company announced a $500 million share buyback and repurchased $68 million worth of common stock in Q2'21 to offset the lost business and utilize the extra cash coming into the business when the deal closes towards the end of Q4'21.
The combined company generated about $1 billion in annual revenues and billings. The following table breaks out the Mandiant business and provides a nice comparison with the prior-year numbers highlighting the strong growth in the Mandiant side of the business and the lack of growth with FireEye.
Source: FireEye Q2'21 presentation
Mandiant has now built up to nearly 50% of revenues of the combined FireEye business, but the new separated company equates to over 50% of quarterly bookings at $131 million compared to only $118 million for the FireEye business. Most importantly, Mandiant grew revenues at a 17% clip in Q2'21 while all other measures support faster growth going forward.
The new company is focused on both strategic consulting around cybersecurity threat intelligence and a SaaS platform to identify security threats for customers via cloud subscriptions and managed services. The company just announced new SaaS-based solutions to launch in January for Active Breach & Intel Monitoring and Ransomware Defense Validation. In essence, the Mandiant services will work to detect the active indicators of compromise and test their readiness to withstand cyber threats such as ransomware attacks.
Mandiant is quickly moving towards a cloud subscription service to drive the business outside of the consulting service towards a recurring revenue stream. The company forecasts returning to a mid-20% growth rate going forward as the business shifts towards a 100% ratable service by 2024. In the last couple of quarters, reported revenues were down due to this major shift to subscriptions starting in 2021.
Source: FireEye Q2'21 presentation
A cybersecurity software company with a solid growth rate typically trades in the 5x to 10x sales level. The problem with the combined FireEye all along was a lack of growth in a hot cybersecurity sector while the company reported rather low margins. Otherwise, if a company isn't growing and isn't generating much in the way of profits, the stock just isn't going to have much value.
After collecting the cash from selling off the FireEye Products business, Mandiant will have an EV ticking below $2.7 billion. The company ended Q2'21 with net cash of ~$260 million.
The new company forecast Q3'21 revenues of ~$120 million, placing the business on a nearly $500 million annual run rate. Clearly, the stock has an interesting EV multiple trading below 6x current sales.
Assuming a 20% revenue growth rate, Mandiant would produce 2022 revenues approach $600 million. The stock easily trades closer to 5x forward sales placing the stock valuation far closer to the lower end of the typical P/S multiples for cybersecurity stocks.
The company forecast some confusing margins due to the split from FireEye. This forecast is likely to hold back any stock rally in the near term. Mandiant has quarterly expenses of ~16% of revenues tied to supporting FireEye. These shared costs will disappear over time, allowing Mandiant to go from a large negative operating margin to margins reaching at 20% by 2025 and beyond.
Source: FireEye Q2'21 presentation
A company with a strong growth rate and improving margins will trade at very high EV multiples. A couple of cybersecurity stocks, CyberArk (CYBR) and Rapid7 (RPD), have constantly traded at forward EV/S multiples in the 10x range based on growth rates consistently in the 20% range.
The new Mandiant could be on pace to expand multiples while the company is repurchasing up to $500 million worth of stock. The cybersecurity specialist spent $68 million in the prior quarter to buy 3.5 million shares, leaving another $432 million left to repurchase more shares going forward.
The key investor takeaway is that Mandiant appears a cheap cybersecurity stock after the split-off of the FireEye business. The new company quickly becomes a fast growing SaaS focused business attractive to investors in the current market. Investors should use any market weakness to load up on Mandiant trading at an EV below 5x sales forecasts.
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This article was written by
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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in MNDT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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